Home Bias Among Institutional Investors: A Study of the Economist Quarterly Portfolio Poll

Abstract

This paper studies the equity home bias puzzle by examining international portfolios recommended by institutional investors. These recommended portfolios from the Economist quarterly poll allow us to isolate the role of information asymmetry in international portfolio investments. The results show that the recommended portfolios exhibit home bias both in the level of portfolio holdings and in the frequency of portfolio adjustments. Specifically, institutions' recommendations are tilted towards home markets relative to benchmark portfolios. In addition, institutions tend to change home market weights more frequently than foreign market weights or than institutions from other countries do. The evidence in this study is consistent with the information story of home bias.

Keywords: Home bias, information asymmetry, international portfolio choices

JEL Classification: G14, G15, G20